Bank of Scotland v Mazamal Hussain (2011)

Summary

Summary judgment was granted to a bank to enforce a personal guarantee given by the owner of a property development company to secure an overdraft facility given to the company where the guarantee had clearly been entered into, the company had breached the overdraft facility terms and the bank had not given a collateral warranty to provide further funding.

Facts

The applicant bank applied for summary judgment on its claim against the respondent (H) to enforce a personal guarantee in respect of liabilities of a company that he owned and controlled. H had negotiated with the bank for an overdraft facility to help fund the purchase and development of a residential property by the company. An overdraft facility of £19.5 million was approved; the project cost was £30 million. The facility letter provided that the overdraft limit should not be exceeded and contained a covenant that the overdraft should not exceed from time to time a set percentage of the property's value. Breach of those requirements were default events entitling the bank to require repayment. The letter also contained an obligation to repay on demand. H was required to enter into a limited guarantee for the company's liabilities. The development did not proceed as planned, and the property market changed. The company exceeded the overdraft limit and a valuation indicated that the property was worth less than the overdraft facility. The bank declined the company's request for further funding and sought payment under the guarantee. H submitted that (1) in the absence of the original guarantee the bank were put to proof that he had entered into it; (2) the bank was in breach of a collateral warranty that it would finance the entire cost of the project; (3) it had been agreed that if H brought the borrowing within the overdraft limit the bank would provide further funds to complete the project; (4) the bank had placed in administration a company (X) that had agreed to purchase a substantial value of units and in doing so had breached its fiduciary duty to H by placing its interest in X above its duty to him; (5) he had intended to enter into a different guarantee, namely one against a costs overrun.

Held

(1) In light of evidence about the copies of the guarantee, there was no doubt that the signature page in evidence was part of the guarantee and that H had entered into it (see para.44 of judgment). (2) There was no evidence of a collateral warranty and the bank had been under no obligation to lend further funds as the company was in breach of the loan to value covenant, which was a default event. The bank had been fully entitled to declare the overdraft due and payable. Further, and in any event, the overdraft was repayable on demand (paras 51, 55). (3) On the evidence of email exchanges, it was highly implausible that the bank had agreed to further funding if H reduced the borrowing (paras 60, 62). (4) H had failed to establish any basis on which it could be contended that the bank had agreed to act for him or the company in circumstances that gave rise to a general fiduciary relationship. Further, it was clear that it had not been the bank's decision to place X in administration (paras 64, 70). (5) During negotiations H had been asked to give a guarantee against a costs overrun, but it was clear that he had later been required to give, and had given, a guarantee in respect of the company's liabilities (para.72). (6) Accordingly, H had no real prospect of successfully defending the claim (para.73).